Attitudes on Wall Street: Dear God, Give Me Strength
As I sat down to watch Bethany McLean talk about the attitudes on Wall Street… remember, she’s the financial reporter that broke the ENRON story, and was appearing on PBS’ NOW with David Brancaccio. Â She was there to talk about the $18 billion in bonuses that Wall Street’s New York executives paid themselves in 2008 while we watched the U.S. and global financial markets literally melt down, I wasn’t expecting to enjoy myself. I was hoping, I suppose, to be educated in some way as to how these financial geniuses think.
Obama called the $18 billion in bonuses… “shameful”.
Brancaccio opened the interview by saying something about how Wall Street must now realize that they’ve “lost the great war and it’s time to do things completely differently”. Bethany laughed, and it was not a staged, pre-planned laugh… she laughed without meaning to, involuntarily. Then she said something that I’m not going to laugh about.
“I don’t think so. I don’t think there’s been a real come to Jesus moment on the Street yet.” She was just shy of chuckling as she spoke.
Brancaccio replied: “Even with all we’ve been through? Even with the great collapse of 2008 and 209?” And Bethany replied, but quite seriously now:
“I think there is still the attitude that it is the fault of American borrowers for borrowing beyond their means, for homeowners for moving into homes they couldn’t afford, and all Wall Street did was package this stuff up and sell it to investors around the world… that they are the least of the villains, rather than the greatest of the villains.”
Further, she said that the feeling on Wall Street is: “that we’re smarter than you so we’re entitled to make a lot more money than the rest of you.” She said that the people at Merrill Lynch, who were paid untold zillions in at the end of 2008, as they were being taken over by Bank of America, believe that it was just a few people at Merrill that created the problems and that you still have to pay people what they were promised.
By this point I was feeling lightheaded.
Bethany then pointed out that there’s a “real gap” between how Wall Street sees it and the rest of the country sees it. That the American people wonder how they can be taking taxpayer dollars and paying out exorbitant bonuses, while Wall Street says that they promised people this compensation and that they must be paid as a result… or they’ll leave.
Is that right? They’ll leave if we don’t pay them? Well, Holy Mother of God… DON’T PAY THEM!
Now… dizzy… when will this end. Maybe watching this wasn’t a good idea…
Bethany said that the argument that people will leave might not hold the same weight it once did, because the number of jobs on Wall Street has been cut by more than half. She said that maybe the upper echelon would leave and if they couldn’t find another job, they’ve been paid enough to just go to the beach for a couple of years…
My mid was now reeling… the light in the room seemed to be fading in and out… which beach? Which beach? WHICH GOD DAMN BEACH?
Brancaccio asked about whether these Wall Street types recognized that bonuses are usually paid on profits, but that profits are “radically down,” and Bethany replied that they don’t. She said that there’s a widespread belief that “it wasn’t my fault, so I’m still owed mine.”
Then she pointed out that the justification Wall Street firms have provided in past years when defending the large bonuses being paid out each year is to look at the profits being made. But, she explained, when you look at the write-downs on assets these firms have taken over the past year or two having completely decimated the profits of the last so many years, the reality is that the profits were illusory… they were never there to begin with… just over valued assets sitting on the books. So, as she put it, “people have already collected millions of dollars that in a strictly economic sense, they weren’t entitled to.”
Damn, is it hot in here? Mind if I open a window?
Brancaccio had a stupid half grin on his face as he segued into his next question about how one news story was reported in two different ways… blah, blah, blah… Apparently, Reuters reported that Wall Street bonuses had dropped the most they’d dropped in 30 years. While the New York Times, looking at the same data, reported “The 6th Largest Bonuses in History in 2008 for Wall Street,” or something very close to that.
Brancaccio then astutely pointed out that 2008 did not produce the sixth largest profits in history, which cleared up a lot of confusion for me, how about you?
Bethany commented that she thought the two different ways of reporting the same data on the bonuses was a good analogy to how Wall Street feels versus how we on Main Street America feel… and then she said, “And to answer your initial question, no… I don’t think Wall Street understands how much Main Street holds them to blame.”
Alright look… the next person that refers to me as “Main Street,” I’m knocking out. You’re the one that’s Main Street, betch. I’m Upper Westside. Or maybe Soho… the Villaige… Central Park East. Take that Main Street rap down the road, you backpacker ho.
Oh dear, I’m sorry about that. I can’t believe I said that out loud?
Citing the stock back-dating scandals that went on just after ENRON, Bethany continued, saying that the same mindset that existed before ENRON still existed today: “That we’re executives and are therefore entitled to money that really belongs to the shareholders.”
Brancaccio, his countenance now looking its most concerned, then asked the all-important question as far as he was concerned: “Will we be able to stop it from happening again?” He went on to say something about how wonderfully transparent Treasury Secretary Tim Geithner has promised to be and how that would help.
I held my laptop out of the way as I threw up on my shoes.
Bethany said she doesn’t have a lot of faith in regulations as far as having the ability to stop future problems, and she points out that Sarbanes-Oxley was supposed to stop the problems in 2003, but that today’s problems had nothing to do with Sarbanes, calling Sarbanes, “completely irrelevant”. She said that regulations are akin to the Maginot Line, which in case you don’t remember your WWII history, did a fine job keeping Germany from invading France.
Then Bethany said that she thought the central problem was “incentives”. I started to pass out… she said that as long as incentives are provided for short-term performance, people will do whatever it takes to achieve that short-term performance and that there’s no “claw-back,” even when that performance is shown just a year or two later to be illusory.
She thinks that’s the biggest problem. Those damn short-term incentives.
Bethany then said that Americans wouldn’t have stood for the government coming out during the boom and saying okay it’s overheated, we’re going to cool things down a bit. So, she thinks “there’s a little hypocrisy there on the part of Main Street, as well.”
I slapped myself across the face as hard as I could.
When I came back, she was explaining that if banks wanted to find out the price of their toxic assets, since nobody knows, they could sell them right now to private investors, but then the losses would be real. And she said the real question is: “Who should bear the brunt of this risk, should it be taxpayers, should it be equity holders, should it be bond holders?
My stomach started to ache… I don’t think I can go on much longer…
Then the two of them went into a discussion about the advantages of nationalizing banks. Brancaccio was saying that the critics of nationalization, which coincidently are the CEOs of the banks themselves, argue that the if the government owned the banks they’d be under political pressure not to do things like put people out of their homes when they didn’t pay their mortgage. Brancaccio asked: “So, is that such a bad thing?”
And she replied that it was a tricky question.
I inadvertently pulled out a good size clump of my own hair.
When Bethany was asked about the banks and the idea of selling the toxic assets to “the bad bank,” she said:
“It doesn’t change the need to determine the actual price of the toxic assets, because the banks will have to sell them to the bad bank. If the government buys the toxic assets at a price where the taxpayers would actually make money on them in the long run, then you’re going to cause a severe hole in the balance sheets of financial institutions… that’s going to mean that the banks will need more capital to fill that gaping hole. If the government buys the toxic assets at a price that keeps the financial institutions whole, keeps the balance sheets intact… then taxpayers are going to have to bear the losses on the toxic assets.”
Be careful… if you read that last paragraph again, your eyes could start to bleed, and you’d land yourself in the hospital for a week. Just say no… no good cam come of it.
Bethany went on to talk about how so many people are guilty in creating this crisis that no one is going to go to jail, as in Jeff Skilling and Andy Fastow of ENRON fame. She thinks the Wall Street executives were wrong, the borrowers were wrong… the sub-prime lenders were wrong. And that it’s hard to pull one person out of that crowd and punish them, because it was tricky question as to whether they did something unethical, as opposed to illegal.
Many experts say that the banks will likely need $2-$4 trillion more from the taxpayers, before this is over. And to top it all off, Bethany said she thought the idea of loan modifications was yet another… tricky question.
At that, I dropped my laptop on the tile floor and went for a walk.
Just don’t, okay? Â I don’t want to talk about it.